3.1 The need to evaluate the replacement, retirement, or augmentation of assets results from
changes in the economics of their use in an operating environment. Various reasons can
underlie these changes. Briefly discuss any 3 reasons why assets may need to be replaced,
retired or augmented. (10)
3.2 Stylish Bricks is contemplating replacing their 12-year-old truck which now has
maintenance expenses of R190,000 per year and it can be kept for ten more years, at
which time it will have zero market value. It is believed that R290,000 could be obtained for
the truck if it were sold now. A new truck can be purchased for R1 000 000.00. The new
truck will have a market value of R700,000 in ten years and will have annual operating and
maintenance expenses of R55,000 per year. Using a before-tax MARR of 19% per year,
calculate to determine if the old truck should be replaced. A study period of ten years is
appropriate.